ICO funding reached record levels in 2017. However, the euphoria starts to wear off with the news that half of the projects from this time have not lasted even a year. Does this mean that it’s too late — or not very practical — to become an ICO investor? No, but you should consider following some straightforward rules for making a wise investment decision.
We decided to break down these rules into several categories, moving from simple to more specific ones.
Content Quality and Visual Impressions
It may sound trivial, but visual impression DOES matter. Before embarking on in-depth research into an ICO project, you go to its website, right? That’s where the first impression is made. This extends to the white paper and social media platforms. If the team has put effort and thought into marketing, the overall visual impression and content quality are going to be slick, consistent and relevant. What type of news and posts do the social media channels have? What kind of message does the team try to convey via its social platforms? Do they put effort into the branding of content? Can you spot a brand identity? On the other hand, if there is too much advertising this is not a good sign, in general.
Tip: quick-start your evaluation by checking the company’s address and contact information given on the website.
Availability of a working product
This is self-explanatory. The idea may sound amazing and even easily executable on paper. However, if there is no MVP or working product, how do you evaluate the project or its functionality?
Tip: The code will be often openly available via the project’s website. Perform due diligence by checking if the code is original, not a copy.
The team
This aspect is not as easy as it may seem. Yes, checking profiles of team members is a necessary step. Yes, team members should have relevant experience in blockchain technology and the crypto industry. Ideally, there should be at least one member with a successful ICO story to tell. However, the main question to ask here is the following: is this team able to execute the project presented? Are there professionals in business development, financial and project management, or marketing? Do they have trackable/proven experience? Also, it’s vital to find out as much as possible about the development team.
Tips: Read a dedicated thread on Bitcointalk.org, pay attention to how the team answers questions (be especially scrupulous with answers to technical matters — they shouldn’t be vague or too complicated). Ask team members — including developers — various questions via their social media profiles. Be critical (and sometimes even skeptical) about the project’s advisors, partners and investors (are they real? what reputation do they possess?).
White paper
You should read the white paper inside out; there are no exceptions to this rule. The tricky part is to know what exactly you should be looking for. We mentioned earlier that the white paper contributes to the overall visual impression of a project. However, content is of paramount importance. The general rule is the paper should be clear and to-the-point; it shouldn’t complicate things. If the technology behind the project is too advanced, there should be a technical paper with detailed explanations and examples. Must-haves for a white paper include: 1) a thorough analysis of industry and target market with links to stats and data sources; 2) a financial model and marketing strategy with clear-cut, realistic goals; and 3) competitor analysis.
Tip: Pay attention to how the following questions are addressed:
- How does the project function?
- How is the contract implemented?
- What rights do coin holders have?
- What are the company’s risks and opportunities?
Technical aspects
Finally, we move to the most complex aspects of evaluation: Does the project really need blockchain or tokenization? The white paper should address these questions and provide precise answers, but even this may not be enough. Most blockchains are currently slow, expensive and inefficient to implement at scale. There should be a valid reason to use decentralized technology instead of a centralized option. Another point to consider: In which industry will the project operate? Are there big, corporate competitors that could jeopardize “a breakthrough” by simply putting more funding, more specialists and less time into developing new technology or improving an existing one? Also, regarding tokenization: Does the project need its own token? Why would an existing cryptocurrency not be enough? If the token is really a necessity, is it a utility or a dividend one? As a general rule, utility tokens are more attractive since they can be exchanged for products or services. A good sign that a team is serious about its project is a completed Howey test. Another positive point is the availability of escrow.
Tip: If technical aspects are vague, tricky or hard to follow, then this is a red flag.
Financial Considerations
A financial model should include financial projections and a pricing model. The main question to consider: What is the fundraising money being used for? Is there a clear explanation of resource usage? For example, if too much money is going to development, consider this to be a warning sign. Aside from the technical description of a token, there should be an allocation scheme. The general rule is that the majority of tokens should go on the sale, with a small amount being given to the team (including the advisors).
Tip: Pay attention to the overall “tone” of the financial strategy. Does it sound too good to be true? Are the goals set unrealistic and too hard to reach?
The proper strategy for beginning the evaluation of an ICO is to use the 4T Model: Team, Tech, Theme, and Token. We have provided some general explanations and tips to consider before making an investment decision. Common sense is also a part of any strategy; whilst going through a white paper and other documents, consider whether the project solves a real problem; whether the solution has potential to be adaptable for the mainstream (relatively quickly and without additional resources)?
Advanced features
The next step is to read independent reviews and reports. ICOs reviews are written by experts in various industries and are evaluated from multiple aspects. Aside from reviews, reports and forecasts are also available. Independent analitical agency ICORating specializes in ICOs evaluation and writing reports. Investors can read ICORating documents and utilize them in their decision making.
